ETHEREUM IN A BUBBLE? SOME FUNDAMENTALS

With such a rapid increase in the price of Ethereum over recent weeks, concerns have been raised over whether this current level ($230-$260) is sustainable, or whether we are witnessing a bubble that may pop dramatically in the weeks ahead. I am not one for analyzing graphs, Fibonacci sequences or “reading the technicals” – a quick way to go broke – but I can talk a bit about the fundamentals of Ethereum and the outlook ahead. Remember, I am not a qualified financial advisor – always tread with caution in the crypto-sphere, this is just my opinion.

Proof of Stake

In early 2018 the Ethereum Foundation is expected to move the network consensus model from Proof of Work to Proof of Stake. Both of these consensus models are capable of securing massive distributed networks through incentive structures (hence the need for a public blockchain to use a cryptocurrency), however Proof of Stake differs greatly.

In Ethereum’s proposed Proof of Stake consensus model, the network is secured by staking Ether in a specialized smart contract and “voting” on valid blocks. Those staking in an attempt to attack the network (“voting” for invalid blocks) will lose their stake, whilst those who act honestly will receive “interest” payments. This not only has great environmental advantages when compared to Proof of Work (no massive consumption of electricity), but PoS has the following price implications:An enormous volume of Ether will be time-locked in staking contracts and taken out of supply indefinitelyFewer coins will need to be issued per block as cost of mining (electricity) is tremendously reduced